The Consumer Sentiment Index has shown only relatively small variations since the pandemic started, averaging 81.5 in 2020, marginally above January’s 79.0. Needless to say, Sentiment levels were well below the average of 97.0 from 2017 to 2019, according to the University of Michigan Surveys of Consumers.

The same relative stability at depressed COVID-19 levels was shown by the Expectations Index. Importantly, the level of these key confidence indicators remained well above prior cyclical lows despite the sudden and unparalleled collapse in economic activity.

Despite unyielding job and income disparities, as precautionary motives begin to ease, accumulated savings will spark a significant gain in spending in late 2021, said U-M economist Richard Curtin, director of the surveys.

“The partisan shifts included views about excessive federal debt, upward pressures on inflation,and rising interest rates,” he said. “While some concerns about these key measures are justified, outsized fears have been expressed by Republicans and outright dismals by Democrats.

“The inflation rate during 2021 was expected to reach 3.6% among Republicans, while it was expected to average just 2% among Democrats. Excessive increase in interest rates were also expected among Republicans compared with Democrats. While the pandemic’s huge human toll warrants additional risks, the partisan divide reflects the distribution of future costs and benefits.”

Health crisis with economic repercussions

The data suggest that consumers consider the pandemic as primarily a health crisis that had serious repercussions on the economy. Consumer confidence was largely unresponsive to changes in the pace of COVID infections and deaths, and to the growing availability of vaccines, Curtin said.

Most frustrations were expressed about its distribution and vaccination priorities. The overall stability of consumer confidence benefited from wearing masks and social distancing, the quick substitution of home for office work, and the prompt distribution of generous federal benefits. It was these factors that helped to offset the pandemic’s negative impact on the economy, he said.

Offsetting extreme partisan shifts

In contrast to low but stable levels of economic expectations, partisan views have been extremely volatile, Curtin said. In the past three months, the Index of Consumer Expectations jumped among Democrats to 91.8 in January from 68.6 in October, but among Republicans it has plunged to 51.4 in January from 96.4 in October.

Importantly, the weighted average across Democrats and Republicans was identical to the average among Independents as well as the all-household average—as it had been when the opposite partisan views prevailed under Trump. This has effectively neutralized the impact of partisanship on economic expectations as well as equalized public rancor, he said.

Consumer Sentiment Index

The Consumer Sentiment Index was 79.0 in the January 2021 survey, just below December’s 80.7 but substantially below last January’s 99.8. Most of the recent loss was in the Current Conditions component, which fell to 86.7 in January from 90.0 last month. The Expectations Index fell slightly to 74.0 in January 2021 from 74.6 in December 2020.

About the surveys

The Surveys of Consumers is a rotating panel survey based on a nationally representative sample that gives each household in the coterminous U.S. an equal probability of being selected. Interviews are conducted throughout the month by telephone. The minimum monthly change required for significance at the 95% level in the Sentiment Index is 4.8 points; for the Current and Expectations Index, the minimum is 6 points.

Surveys of Consumers
U-M Institute for Social Research